CALGARY, Aug. 9, 2011 /CNW Telbec/ - Exall Energy Corporation ("Exall " or the "Company") (TSX: EE) is pleased to announce its International Financial Reporting Standards ("IFRS") compliant financial and operating results for the three and six months ended June 30, 2011.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

• Current production is 1,420 boe/d with June 30 2011 productive capability of 1,965 boe/d,
  
  
• A second quarter 2011 production average of 896 boe per day a 7 percent increase over the same period in 2010,
  
  
• Participated in the drilling of 1.0 gross (0.66 net wells) during the second quarter of 2011, one additional well has been drilled and two cased since the end of the second quarter,
  
  
• Acquired 14,080 gross (10,714 net) acres of undeveloped land in the Mitsue area,
  
  
• Exall shut in all production at Mitsue Alberta, from May 15^th to June 1^st as a result of the forest fires in and around Slave Lake Alberta resulting in significantly lower daily production levels for the second quarter, and consequently the first half,
  
  
• Wetter than normal June and July 2011 caused flooding in and around Slave Lake hampering drilling, completion and tie-in operations. As a result Exall is 4.0 gross wells behind on its projected drilling program for 2011 causing Exall to adjust its targeted 2011 exit rate to 2,500 boe/d, and
  
  
• Year to date 2011 seismic and drilling operations have identified up to 40 drilling locations in the greater Mitsue area, eleven of these wells, targeting light oil, are planned to be drilled through the balance of 2011 with nine more to be drilled in 2012.
  
  

Production

Exall's average daily production for the second quarter of 2011 increased 7 percent to 896 barrels of oil per day ("boe/d") from 839 boe/d in the second quarter of 2010. The 896 boe/d is down 15 percent from the first quarter production of 1,045 boe/d. This was the result of shutting in the production from the Company's Marten Mountain operation from May 15, 2011 to June 1, 2011 due to fires in and around the town of Slave Lake, Alberta. As at June 30, 2011 Exall's net exit production rate and productive capacity were as outlined below:

* Productive capability assumes B trend waterflood approval at Marten Mountain, Mitsue, Alberta.

The difference between the June 30, 2011 production rate of 1,147 boe/d and the productive capacity of 1,965 boe/d is the result of having shut in two wells due to the fact that they had overproduced their allowable volumes during the New Oil Well Production Period ("NOWPP") as prescribed by the Alberta Energy Resource Conservation Board ("ERCB"). This over production will be retired by July 1, 2011 and August 1, 2011 respectively. The two wells currently shut in will add 200 BOEPD by August 1, 2011.

Exall's production strategy is to produce all new wells at a rate approximating their productive capacity during the NOWPP, which will usually result in the well over producing its allowable as prescribed by the ERCB. As such, each new well will see an initial period of high productivity, significantly enhancing Exall's production, followed by a period where the well is shut in. During the shut in time frame, Exall will, should the facts warrant, apply for additional waterflood approvals which will require water injection wells. Exall may convert existing producing wells into water injection wells if the result were to be an overall increase to, and/or a long term stabilization of production.

Exall estimates that as the number of producing wells continues to increase in the Marten Mountain region of Mitsue, Alberta, the significant production fluctuations now seen by the bringing on and shutting in of new wells will diminish.

Outlook 

Exall has continued to focus its capital in development of the Marten Mountain Prospect area through the second quarter of 2011.  Five gross (3.48 net) wells have been drilled through the first half of 2011 adding two producing wells which have now been tied in and are on stream through the Company-owned pipeline and battery facilities.  Completion operations on the remaining three wells will continue through the third quarter.

The well drilled during the second quarter of 2011 has continued to add reserves with multi-zone sand development and identified a number of offset drilling opportunities. The ability to continue development of this key property year round has allowed Exall to increase its production potential and accelerate development plans in the Marten Mountain area.

During the first quarter of 2011, the successful completion of two 3D seismic programs in the Mitsue area has potentially identified two Gilwood sand trends adding two well locations, which are accessible through the summer. Exall is planning to spud the first of the two wells in August to verify the seismic signature. With success the second well will be drilled immediately. Up to fourteen locations have been identified by the seismic programs and with drilling verification will add substantially to the Company's activity and production through 2011 and beyond. The Company has an inventory of up to 40 wells identified on held lands. A number of locations are on lands acquired at recent sales, or farmin and acquisitions. Exall plans to drill thirteen wells through the balance of 2011, for a total of nineteen gross wells for the year.

Exall has completed its battery expansion and continues to modify fluid and gas handling capacity to accommodate increasing production rates. The Company's wells are currently constrained by limits to water injection and to some extent the gas handling capabilities.  An application to provide additional water injection for the Company's waterflood scheme has been approved by the ERCB to begin injecting water for the south enhanced recovery scheme. An additional rental compressor will be installed during the third quarter and an electric drive compressor with adequate capacity to handle future expected increases in gas deliveries will be installed at the battery in the fourth quarter.

Current net production for Exall is approximately 1420 BOEPD. Exall currently has well capacity to produce 1,965 boe/d upon implementation of the waterflood project, recently approved by the ERCB. The target 2011 exit rate is currently estimated at 2,500 boe/d, adjusted as a result of the delays, encountered to date, in the planned 2011 drilling program.

RESULTS OF OPERATIONS

Production for the second quarter of 2011 averaged 896 boe per day, a 7 percent increase over the same quarter in 2010.  The 896 boe/d is down 15 percent from the first quarter production of 1,045 boe/d. This was the result of shutting in the production from the Company's Marten Mountain operation from May 15, 2011 to June 1, 2011 due to fires in and around the town of Slave Lake, Alberta.

On a year over year basis production has increased 17 percent to 970 boe per day in 2011 due primarily to the continued drilling success at Marten Mountain / Mitsue, Alberta.

For the six months ended June 30, 2011 oil and natural gas liquids accounted for 88 percent of production which is expected to continue to increase as the oil production from additional successful drills in the Marten Mountain area of Alberta are placed on production.

The average price received per boe in the second quarter of 2011 increased 36 percent over the same period in 2010 to $91.52. The average price received per boe in the first six months of 2011 increased 21 percent over the same period in 2010 to $84.54.  The price for light, sweet oil at Edmonton in 2011 averaged $103.10 per barrel in the second quarter and $95.56 for the first six months of 2011, up from an average of $77.67 in 2010.  Alberta natural gas at AECO averaged $3.50 per mcf in the second quarter of 2011, $3.45 per mcf for the first six months of 2011 and is currently trading at approximately $3.81 per mcf. The Company's Marten Mountain oil production attracts a price approximating the Edmonton light, sweet oil price due to its high quality.  The Company has not entered into any commodity hedges to date.

Oil and gas sales in the second quarter of 2011 increased 46 percent from the same period in 2010 as a result of the 7 percent increase in production and the 36 percent increase in commodity prices received on a period over period basis. For the six months ended June 30, 2011 oil and gas sales increased 177 percent to $14,842,371 with oil and liquids sales contributing 96 percent of the sales.  The 177 percent increase for the six months ended June 30, 2011 from the same period in 2010 was a result of the 17 percent increase in production and the 21 percent increase in commodity prices received on a period over period basis.

The decreased royalty rate in the second quarter of 2011 and the first six months of 2011, as compared with those in 2010, was primarily the result of a significant portion of the Company's production from wells which were producing under the New Oil Well Production period and as such were paying a 5% royalty rate, while 2 wells that have higher royalty rates (40%) associated with them were shut in for over production.

The increase in royalties per boe in the second quarter reflects the 36 percent increase in commodity prices received during the second quarter of 2011 as compared to the second quarter of 2010. The year over year decrease in the royalties per boe reflect the new royalty rates in Alberta, applicable to oil production. Effective January 01, 2011 the oil royalty rates were revised to a maximum of 40% from the 50% paid during fiscal 2010.

Operating expenses in the second quarter of 2011 increased 80 percent from the same period in 2010, due to non-recurring charges to operations including; 1) increased road & lease maintenance costs as a result of the significant rainfall during the month of June in the Mitsue, Alberta area, 2) increased well maintenance costs associated with a minor work over on the water injector well at Marten Mountain, and 3) the increased property taxes.  On a per boe basis, operating costs increased 68 percent, to $12.00 per boe due the previous items listed, in conjunction with shutting in the production from the Company's Marten Mountain operation, from May 15, 2011 to June 1, 2011, due to fires in and around the town of Slave Lake, Alberta.

For the reasons stated above plus the increased scope of operations from fiscal 2010 to fiscal 2011, the operating expenses for the six months ended June 30, 2011 increased 60 percent from the same period in 2010, and on a per boe basis, operating costs increased 36 percent, to $9.69. Management is confident that as production increases during the remaining six months of 2011 the per boe cost of operations will return to historical levels.

Operating Netback

Operating netbacks in the second quarter of 2011 increased 47 percent to $52.28 per boe compared to the second quarter 2010 operating netbacks of $35.52 per boe.  This is primarily the result of the overall commodity price improvement of 36 percent on a second quarter over second quarter basis.

On a six month period over six month basis, 2011 operating netbacks increased by 46 percent to $50.50 per boe.  This is primarily the result of two factors: 1) overall commodity prices improved 21 percent on a period over period basis. 2) royalty costs per boe improved 14 percent reflecting; a) the new royalty rates in Alberta, applicable to oil production, which, effective January 01, 2011, were revised to a maximum of 40% from the 50%, and b) a significant portion of the Company's production was from wells which were producing under the New Oil Well Production period and as such were paying a 5% royalty rate.

Depletion is calculated using the unit-of-production method based on total estimated proved plus probable reserves.  DD&A for the second quarter of 2011 was $1,433,471 compared to $1,049,910 for the same period in 2010. DD&A in for the first six months of 2011 was $2,972,143 or $16.89 per boe compared to $2,114,488 or $14.14 per boe for the same period in 2010.  DD&A expense per boe in 2011 has increased from 2010, a result of continued successful drilling operations at Marten Mountain, Alberta.  There were no indicators of impairment identified as at June 30, 2011.

General and administration costs represent the costs required to effectively operate a public company. The increase in costs from 2010 reflect the increased cost of staffing commitments made in conjunction with the increased production and capital expenditures in 2010 and 2011 as Exall continues to achieve positive results with regard to its drilling program in the Marten Mountain, Mitsue area.

General and administration expenses per boe in 2011 have increased from 2010 on a quarter over quarter basis, as a result of having to shut in the production from the Company's Marten Mountain operation from May 15, 2011 to June 1, 2011.  General and administration expenses per boe in 2011 have declined from 2010, on a year over year basis due to increased production, a result of continued successful drilling operations at Marten Mountain, Alberta.  Management is continually monitoring general and administrative expenses to ensure that they are being managed effectively and efficiently.

The share based payment expense represents the expense for options granted and are recorded over the vesting period of the options. Additional unamortized stock-based compensation costs will be charged to income over the remaining vesting period of the options outstanding as well as any additional options that may be granted in the future.  See note 9 of the June 30, 2011 interim financial statements for additional details on the options granted and outstanding.

Exall recorded $167,087 or $2.05 per boe of non-cash, stock based compensation expense for the three months ended June 30, 2011 and $263,677 or $1.50 per boe for the first six months of 2011. In comparison, Exall recorded $217,155 or $2.85 per boe of non-cash, stock based compensation expense for the three months ended June 30, 2010 and $277,650 or $1.86 per boe for the first six months of 2010.

Financing costs represent the costs required to effectively finance the capital program of Exall. Exall recorded $200,956 or $1.14 per boe of interest expense for the six months ended June 30, 2011. In comparison, Exall recorded $253,452 or $1.69 per boe of interest expense for the six months ended June 30, 2010. The decrease in interest expenses from 2010 are directly attributable to financing completed by the Corporation on February 1, 2011.

Additionally, Exall recorded $18,451 or $0.11 per boe of accretion expense for the six months ended June 30, 2011. In comparison, Exall recorded $25,074 or $0.17 per boe of accretion expense for the six months ended June 30, 2010. The decrease in accretion expenses from 2010 are directly attributable to the decreased abandonment liabilities incurred by the Corporation in association with its development and production activities.

Liquidity and Capital Resources

Exall has a revolving demand credit facility with a Canadian chartered bank for $23.0 million that bears interest at the lender's base prime rate plus 1.50 percent which is reviewed periodically by the bank. At June 30, 2011, the Company had approximately $13.3 million outstanding on its revolving credit facility and an approximate working capital surplus, excluding bank indebtedness, of $0.5 million for total net debt of approximately $12.8 million.

During the three and six month periods ended June 30, 2011, the Company used funds received through its February 2011 brokered private placement and cash flow from operations to fund capital expenditures and other financial requirements.  In 2011, the Company's capital expenditures will be limited by the cash flow available from operations, additional debt or equity as market conditions may allow and potential asset sales if the Company so chooses.

On February 01, 2011, Exall announced that it had closed a bought deal special warrant private placement, whereby Exall issued an aggregate of 5,750,000 special warrants at a price of CDN$2.00 per Special Warrant for aggregate gross proceeds of $11,500,000. The aggregate number of Special Warrants included 750,000 Special Warrants issued pursuant to the exercise in full of the option granted to the Underwriters' under the Offering. Each Special Warrant entitled the holder thereof to receive one common share of the Company on the exercise or deemed exercise of the Special Warrants.  Effective February 2, 2011, the Special Warrants were deemed to have been exercised and the Company issued an aggregate of 5,750,000 Common Shares to the Special Warrant holders.

As part of its capital management program, Exall compares its net corporate debt (the total amount of bank loan, net of working capital) to the annual, or annualized, funds from operations before changes in working capital (See Advisories - Non-GAAP Measurement - Funds Flow). Maintaining a ratio of less than 2:1 is a Company target but can be subject to significant short-term fluctuations.

(1) See Advisories Non-GAAP Measurements - Funds From Operations

Going Concern Assessment

The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As at June 30, 2011, the Company had a working capital surplus, excluding bank indebtedness, of $0.5 million.

On February 01, 2011, Exall announced that it had closed a bought deal special warrant private placement, whereby Exall issued an aggregate of 5,750,000 special warrants at a price of CDN$2.00 per Special Warrant for aggregate gross proceeds of $11,500,000. The aggregate number of Special Warrants included 750,000 Special Warrants issued pursuant to the exercise in full of the option granted to the Underwriters' under the Offering. Each Special Warrant entitled the holder thereof to receive one common share of the Company on the exercise or deemed exercise of the Special Warrants.  Effective February 2, 2011, the Special Warrants were deemed to have been exercised and the Company issued an aggregate of 5,750,000 Common Shares to the Special Warrant holders.

Fair Value of Financial Instruments

The Company's financial instruments as at June 30, 2011 include cash, accounts receivable, accounts payable and accrued liabilities and the bank indebtedness.  The fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity.  The Company's bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.  Additional information concerning the Company's financial instruments and related risks are in note 14 to the consolidated financial statements.

Oil and gas property expenditures were $6,667,137 for the second quarter of 2011.  During the second quarter of 2011 the Company participated in the drilling of 1.0 gross wells (0.7 net) in the Marten Mountain / Mitsue area. Oil and gas exploration and development expenditures were $2,563,050 for the second quarter of 2010.  During the second quarter of 2010 the Company participated in drilling of 2.0 gross wells (1.4 net), in the Marten Mountain / Mitsue area.

The Company has acquired 14,080 gross (10,714 net) acres of undeveloped land in the Mitsue area, during the three months ended June 30, 2011. As at June 30, 2011, the Company had 44,080 acres (26,354 acres net) of undeveloped land in Canada, primarily in the Marten Mountain / Mitsue area of Alberta.

About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta, and Texas. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 62,188,854 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE.

Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.